Solicitors:
Australian Government Solicitor (plaintiff)
File Number(s): 2017/169447
[2]
Judgment (EX TEMPORE)
By an originating process filed on 6 June 2017, the Deputy Commissioner of Taxation applies for orders winding up, on the just and equitable ground, ten companies, namely Plutus Payroll Australia Pty Limited, PPA Contractors Australia Pty Limited, PPA Services Australia Pty Limited, PPA US Holdings Pty Limited, PPA NSW Pty Limited, PPA Services WA Pty Limited, PPA SA Pty Limited, PPA NT Pty Limited, RAM Enterprises Australia Pty Limited and SAI Solutions Australia Pty Limited.
The application for leave to serve short notice of the originating process was made on 6 June 2017, on which occasion some time before the luncheon adjournment that day I granted leave to file the originating process, directed that it be returnable on Thursday 8 June at 9.45am and abridged the time for service to close of business on Tuesday 6 June 2017.
Evidence of service, by way of affidavits of the persons who served the relevant documents, now establishes service at the registered office of each of the defendants other than the first defendant Plutus Payroll and the tenth defendant SAI Solutions. So far as Plutus Payroll is concerned, an appearance was made by its voluntary administrators, albeit belatedly, after the matter had come before the Court on 6 June, and in those circumstances further proof of service is not required.
So far as SAI Solutions is concerned, the evidence establishes service on a director of SAI Solutions, by delivery to a person who claimed to be authorised to accept service on his behalf, which of itself would not suffice; but subsequent evidence indicates that the director personally contacted the plaintiff's solicitors to discuss the documents which it had received. In those circumstances I am satisfied that the proceedings came to the notice of the tenth defendant.
In many cases service was effected after close of business on Tuesday 6 June 2017, that is to say, outside the abridged time for service which was close of business on 6 June 2017. However, the practical consequences of this, which appears to involve a couple of hours, is insignificant, and in those circumstances, I order that time for service be extended to 11.59pm on 6 June 2017. Accordingly it can be concluded that there has been valid service on each of the defendants. I have made those observations because initially the Court was asked to act on unsworn reports of service by process servers annexed to a solicitor's affidavit. An unsworn report of service is no evidence of service at all. It is not admissible as a business record because it is made in contemplation of proceedings - namely the proceedings in which the process is served - nor is it admissible on any other basis. Accordingly, such evidence - at the very least unless there is evidence of information and belief, which there was not - does not begin to establish service in the requisite way. As will appear, in these proceedings due notice to the defendants is a relevant consideration in the conclusions to which I ultimately have come. Thus proper proof of service was an important matter.
The plaintiff moves for the winding up of the defendants on the just and equitable ground. In a nutshell, the plaintiff contends that each of the defendants is indebted to it for large amounts of unpaid tax and penalties, and that that is the result of a scheme between various persons pursuant to which these companies were used to evade tax on a very large scale.
The application presently before me is for the appointment of a provisional liquidator to each of the companies pending the hearing of the application for a winding up order. The principles applicable on an application for the appointment of a provisional liquidator are well established: first, the plaintiff must show a serious arguable case for a winding up order, and secondly, there must be sufficient cause for taking the drastic step of appointing a provisional liquidator before the final hearing at which the grounds for a winding up order might be established. The relevant considerations normally involve maintaining the status quo and preserving the assets and undertaking of the company pending the hearing where they are in jeopardy. Considerations of the public interest may also intrude at this stage. [1]
[3]
Arguable case for a winding up order?
I am satisfied on the evidence so far before the Court that prima facie there is a strong case for a winding up order in respect of each of the defendant companies. I emphasise that that is a prima facie conclusion, at this stage, before the evidence has been adduced in proper form, and based on material which is in part conclusionary in nature and which might not survive at a final hearing if objected to in its current form. Nonetheless, on an interlocutory application of this kind, that evidence establishes a number of relevant matters:
1. first, the companies severally and together appear to have unpaid taxation liabilities of a very large order;
2. secondly, that appears to be the consequence of a scheme by which the companies were used to evade tax;
3. thirdly, those named as directors in the records of the companies maintained by ASIC, appear to be directors in name only, not to be acting as such and, indeed, at least in some cases, deny knowledge of having been appointed as such;
4. fourthly, except in the case of the first defendant, Plutus Payroll, other winding up proceedings were already on foot on grounds of insolvency. In connection with the institution of these proceedings, the plaintiff in those other winding up proceedings has agreed that the other proceedings may be dismissed, rather than having the present plaintiff substituted in multiple different proceedings; and
5. finally, in the case of Plutus Payroll, after these proceedings were instituted and late on 6 June 2017 at about 6.05pm, the director of that company caused voluntary administrators to be appointed under the Corporations Act, s 436A, which of itself admits insolvency.
As it seems to me, quite apart from any question of the just and equitable ground, there is an apparently strong case for a winding up order on grounds of insolvency, and it may well be that insolvency would provide a surer, simpler and more straightforward way home for the plaintiff than the just and equitable ground. In any event, I am satisfied that on grounds of insolvency, if not on the just and equitable ground, there is a strong case for a winding-up order in respect of each of the defendants. That should not be taken as suggesting that the just and equitable ground does not also have merits, but additional issues and complexities arise in proving matters relied on in that respect that may not arise on simple insolvency.
[4]
Is there sufficient cause for the appointment of a provisional liquidator?
I turn then to whether there is sufficient cause to take the drastic step of appointing a provisional liquidator before a final hearing. It is this issue that has caused me most food for thought, because there is an absence of the kind of evidence one normally expects to see of a threat of dissipation of assets or other irremediable detriment if the matter is left to await the final hearing of the winding-up proceedings. Ultimately, however, the matters which in my view favour the position that a provisional liquidator should be appointed can be summarised as follows.
First, there is the apparent history - within the scheme in the context of which these companies were engaged - of phoenixing arrangements, by which the assets and undertaking of one company would after a time apparently be transferred to another or new company. That bespeaks a risk that if any of these companies do have recoverable assets or the benefit of contracts, there is potential for them to be dealt with in the same manner.
Secondly and importantly, if - as appears to be the case - the nominal directors appearing on the ASIC register are, in truth not acting as directors, then there is a vacuum in the management of these companies.
Thirdly, there is a strong public interest in companies which are not being regularly managed by their named directors and which apparently have incurred enormous taxation liabilities not being permitted to be held out any longer as trading entities. That is particularly so when potentially the companies are under the control or direction of persons other than the nominal directors who appear on the register. Finally, as it seems to me, a most telling consideration, is that after having been given due notice, there is an absence of any opposition to the relief sought, save from the administrators of the first defendant Plutus Payroll to which I shall next turn.
[5]
The position of the voluntary administrators
That brings me to the consequences of the intervention of the appointment of voluntary administrators of the first defendant Plutus Payroll on the evening of 6 June, after the present proceedings had been instituted. Although in a letter from the solicitors acting for the voluntary administrators to the plaintiff's solicitor it was suggested that the consequence was that leave was required under the Corporations Act, s 440D, to continue these proceedings, the prevailing, and in my opinion correct view is that leave is not required in respect of winding-up proceeding which are relevantly the province of s 440A, not 440D. It is true that in Hall v Mercury Information Technology (South Australia) Pty Limited [2002] FCA 272; (2002) 20 ACLC 496 at [14], it was held that provisional liquidation fell within s 440D, but the contrary and better view has prevailed in Australian Prudential Regulation Authority v Rural and General Insurance Limited [2004] FCA 185; [2004] 136 FCR 149; 48 ACSR 616 at [11], and in Evans and Mullumbimby News Pty Limited [2008] NSWSC 240 at [6]. [2]
I prefer that view, because s 440A makes specific provision for the interrelationship of winding-up proceedings (including the appointment of a provisional liquidator) with voluntary administration. Implicit in section 440A(3) is the proposition that the Court can appoint a provisional liquidator of a company in administration, unless satisfied that it is in the interests of the company's creditors to continue under administration rather than have a provisional liquidator appointed.
In the context of the last minute appointment of voluntary administrators in the face of winding-up proceedings, the Court has often expressed its disinclination to defer winding-up proceedings where directors have left it to the last minute to place a company into administration. This view has been expressed, for example, in Reid Constructions Australia Pty Limited, [3] and in Off-Shore and Ocean Engineering Pty Ltd. [4]
That is not the only consideration in the present case. As I indicated in short reasons given yesterday for refusing the administrator's application for an adjournment, they made a forensic decision, being on notice of the application for appointment of a provisional liquidator, not to appear when the matter was listed or when the matter was called. Only afterwards, when it became apparent that the letter which they had sent to the plaintiff and which properly was put by the plaintiff before the Court was not going to deter the Court from proceeding, did they decide to appear to oppose that course.
More importantly, there is a significant interest in there being a single administration in the context of these companies, rather than that responsibility being divided between multiple insolvency administrators. And there is very great interest in avoiding duplication of effort by multiple administrations - and even worse, a contest between administrators and the plaintiff as to the form of the administration and the identity of the administrators - which can only detract from whatever resources might be available for ultimate distribution amongst creditors.
I have not, in the context of the appointment of the voluntary administrators, ignored s 440A(3), but having regard to such information and material as is before the Court, I am not satisfied that it is in the interests of the company's creditors to continue under administration rather than to have a provisional liquidator appointed. For Plutus Payroll to continue under administration would have the detrimental consequences, to which I have referred, of dividing the administration, potentially resulting in duplications of costs and effort and very likely resulting in the application of limited resources to a dispute between the administrators and potential liquidators rather than for the benefit of creditors.
On the other side of the coin, there is nothing to indicate any realistic probability of a deed of company arrangement being proposed or any benefit to creditors arising in that way. I appreciate that the administrators have not had an opportunity to adduce evidence on that issue, but having regard to the totality of the background information, it seems improbable in the extreme that a deed of company arrangement will be propounded, at least one which would involve sufficient benefit for creditors to deter the Court from proceeding to a winding up.
[6]
Which liquidators should be appointed?
The plaintiff has obtained the consent of Timothy Norman, Salvatore Algeri and Ezio Senatori, of Deloitte Financial Advisory, to act as joint and several provisional liquidators and/or liquidators of the defendants. Ordinarily, in the absence of sound objection on grounds of want of impartiality, cost or other unsuitability, the Court will appoint the plaintiff's nominee. As the plaintiff legitimately observes, the issues that are likely to arise in this liquidation make it desirable that the liquidators be from a firm with substantial experience, resources, and nationwide connections - indeed potentially international connections. The plaintiff's nominees meet that requirement.
In accepting at this stage the plaintiff's nomination, and in the absence of any alternative being proposed, I have not taken into account the observation in the plaintiff's evidence that the Deputy Commissioner has agreed to fund those liquidators and no others. I accept that that observation was made in the context that other winding-up proceedings were pending, in connection with which there was real concern on the part of the present plaintiff as to the independence of the then proposed liquidators but, in my view, it is not appropriate for the Court to take into account any suggestion by a plaintiff that it would be prepared to fund only the liquidator of its choice.
[7]
Orders
Pursuant to Corporations Act 2001, s 472, the Court orders that:
1. Timothy Norman, Salvatore Algeri and Ezio Senatore of Deloitte Financial Advisory Pty Ltd (ACT) be appointed jointly and severally as liquidators of the defendants provisionally.
2. The costs of this application be costs in the proceedings.
3. These orders are to be entered forthwith.
4. The originating process be adjourned to 3 July 2017 at 9:45am in the Corporations Motion List.
[8]
Endnotes
See, for example, Deputy Commissioner of Taxation v A & S Services Australia Pty Limited [2017] FCA 437 at [4].
See also Corey v Registrar of the Federal Court of Australia [2010] FCA 1215 at [23]-[24].
In the matter of Reid Constructions Australia Pty Limited [2012] NSWSC 1045.
Offshore and Ocean Engineering Pty Ltd v Greenwich Contractors Pty Ltd [2012] NSWCA 371.
[9]
Amendments
15 November 2017 - Typographical error, cover page
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Decision last updated: 15 November 2017